Moscow has given passports to more than 90 percent of people in South Ossetia.
In early July Russia staged a massive military exercise on the border with South Ossetia.
Russia has recognised South Ossetia and Abkhazia as independent and has vowed to protect them.
Georgia last week launched a military incursion into South Ossetia to rout separatist rebels.
For example, the United States will not recognize Abkhazia and South Ossetia as independent states.
Russia said at least 2, 000 people have been killed in South Ossetia's capital, Tskhinvali.
To the east and west lie the Russian republics of North Ossetia and Karachayevo-Cherkessia.
South Ossetia's capital, Tskhinvali, lay in smoldering ruins Monday after four days of fighting.
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One of his aides said he was recovering from a back injury in North Ossetia.
South Ossetia is a tiny patchwork with perhaps as few as 50, 000 inhabitants in the Ossetian-controlled part.
Even as it complained about NATO's exercises, Russia was deploying border guards in South Ossetia and Abkhazia.
Mr Medvedev's recognition of Abkhazia and South Ossetia may also have unpredictable consequences for Russia's north Caucasus.
Last night, the Republic of Georgia tried to regain control of the breakaway province of South Ossetia.
Ever since Mr Putin came to power in 2000, Russia tightened its links with South Ossetia and Abkhazia.
Russia already had almost full control over South Ossetia and Abkhazia and dealt openly with its self-proclaimed presidents.
Georgia said it launched an operation in South Ossetia on Thursday after artillery fire from separatists killed 10 people.
On Sunday, Saakashvili pulled his troops out of South Ossetia and has since made repeated appeals for a cease-fire.
Suddenly, the action switched to South Ossetia, a much smaller rebellious region divided from Russia by the Caucasus mountains.
Southward, Putin invaded Georgia, annexing 20 percent of its territory in the two enclaves of Abkhazia and South Ossetia.
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Witnesses said many left willingly as they had little left in South Ossetia.
Russia has also increased its military presence in South Ossetia and Abkhazia, the two breakaway regions recognised by Russia as independent.
Many believe that he walked into a trap, miscalculating that he could take South Ossetia before Russian forces arrived in strength.
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Russian officers say that if they leave (unlikely, at least for now), there could be a new conflict in South Ossetia.
He also warned that Russia's involvement in South Ossetia, Abkhazia and Georgia were intended to send a strong message to the West.
It insists that South Ossetia, and the other breakaway region, Abkhazia, must participate in upcoming talks in Geneva on settling the conflict.
Russia has said that its prosecutors are collecting evidence in South Ossetia with which to indict Mr Saakashvili as a war criminal.
The EU's monitors may be welcomed in the buffer zone around South Ossetia, but they will have trouble getting into the two enclaves.
World powers have urged Russia to agree to an immediate cease-fire with Georgia and accept international mediation on the crisis in South Ossetia.
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Mr Mutsolgov says the war in Georgia found little support in Ingushetia, not long ago engaged in a bitter ethnic conflict with North Ossetia.
The Russia-Georgia conflict, which started in South Ossetia last week, continued Sunday, though Georgia began withdrawing its forces from Tskhinvali early that morning.
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